Average IMB lost $2,109 per loan in Q4 2023

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported an average net loss of $2,109 on each loan they originated in the fourth quarter of 2023, according to the Mortgage Bankers Association (MBA).

The loss is almost double the reported loss of $1,015 per loan in the third quarter and marks the seventh consecutive quarter of net production loss. 

“The fourth quarter of 2023 was about as challenging as it could get for mortgage lenders to generate a production profit,” said Marina Walsh, MBA’s vice president of industry analysis. 

Production gains and losses for IMBs and mortgage subsidiaries of chartered banks over the past five years. Courtesy of the Mortgage Bankers Association

“This year was exacerbated by the current lack of housing inventory and mortgage rates that increased to their highest levels of the year, keeping refinancings volumes low. These factors contributed to a ‘perfect storm’ that resulted in a decline in production volume for the quarter that reached the lowest level for this report since 2014.”

Total production revenue – including fee income, net secondary marketing income and warehouse spread – increased to 334 bps in Q4, up slightly from 329 bps in the quarter prior. On a per-loan basis, production revenue decreased to $10,376 per loan in the fourth quarter, down from $10,426 per loan in the third quarter.

Total loan production expenses – such as commissions, compensation, occupancy, equipment and corporate allocations – rose to $12,485 per loan in Q4, up slightly from $11,441 per loan in the previous quarter. Loan production expenses averaged around $7,389 per loan.

Despite tough market conditions, some companies have been able to weather net production losses through cash reserves or infusions and strong servicing cash flows.

Servicing operating income – which excludes mortgage servicing rights (MSR) amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs – was $104 per loan in Q3, the MBA noted.

The sale of MSRs does not directly impact earnings as a revenue stream, but the conversion of MSRs into cash via sales deals bolsters a lender’s cash flow and overall liquidity.

The MBA expects mortgage origination volume for one- to four-family homes to post $390 billion in Q1 2024, down from $399 billion in Q4 2023, according to its latest forecast.

The trade group also projected the 30-year fixed mortgage rate to average around 6.9% in Q1 2024 before falling to 6.6% in the next quarter.